SAN FRANCISCO (CN) — A disclaimer in Facebook’s terms of service cannot shield it from a class action accusing it of using false metrics to inflate the value of its video advertising service, a federal judge ruled Friday.
“Facebook’s disclaimer is too vague to warn a reasonable consumer that Facebook may provide advertising metrics without properly vetting or auditing them for approximately two years,” U.S. District Judge Thelton Henderson wrote in denying in part and granting in part Facebook’s motion to dismiss.
Lead plaintiff Thomas Letizia sued Facebook in October 2016, claiming it gained an unfair advantage by overstating the average time viewers watched video ads by 60 to 80 percent. Menlo Park-based Facebook acknowledged in September 2016 that it had miscalculated two key metrics by leaving out views that lasted less than three seconds.
Henderson dismissed unfair competition and injunctive relief claims against Facebook without prejudice, but refused to dismiss a breach of implied duty claim. He also threw out a quasi-contract claim with prejudice.
During a hearing in June, Facebook attorneys argued the company can’t be liable for a “software error” because its terms of service state that Facebook does “not guarantee” its service “will always be safe, secure, or error-free.”
Its attorney Ashok Ramani said Facebook does not assert the warning will shield it from all liability, but that in the case of a software error, the disclaimer should apply.
Henderson found the disclaimer too broad, and that it was not clear whether the false metrics resulted from a software bug.
“The Court finds it unclear whether the cause of Facebook’s alleged mistake falls within the scope of a ‘software error,’” Henderson wrote in the 24-page ruling.
He refused to dismiss a state law claim of unfair competition on that basis, but instead dismissed the claim without prejudice for lack of standing. He found the plaintiff advertisers failed to adequately allege they relied on false data when purchasing ads.
Turning to a breach of implied duty claim, Henderson rejected Facebook’s argument that it had no contractual or implied duty to provide viewership data, let alone accurate data.
He also refused to accept arguments that Facebook provided the performance metrics as “a free, complimentary service” or gift to advertisers.
“Here, there is no doubt that Facebook had been providing advertising metrics to plaintiffs as part of its advertising services,” Henderson wrote, as the contract specifically referred to “use of the self-service advertising interface.”
But he denied the advertisers’ claim for injunctive relief, finding they failed to show a “real or immediate” threat of future injury, since Facebook has corrected the problem that was skewing its data.
He dismissed a quasi-contract claim, finding “there cannot be a claim based on quasi contract where there exists between the parties a valid express contract covering the same subject matter,” citing the 2015 ruling in Smith v. Allmax Nutrition from the Eastern District of California.
The plaintiffs have until Aug. 14 to file an amended complaint.
Facebook spokeswoman Vanessa Chan said in an email: “We’re pleased with the court’s decision to dismiss these claims. The case has no merit, and we will continue to defend ourselves vigorously.”
Facebook, the world’s most popular online social network, boasts of 1.94 billion active users each month, according to its website. The company, launched in 2004 by Harvard dropout Mark Zuckerberg, was valued at $435 billion in April, according to Forbes.
Facebook earns more than 95 percent of its revenue from advertising, according to Letizia’s complaint.
Facebook’s attorney Ramani and plaintiffs’ attorney Gregory Rueb did not return phone calls seeking comment Friday afternoon.
Ramani is with Keker Van Nest & Peters in San Francisco; Rueb with Rueb & Motta in Concord, California.